Fortescue has had an amazing 24 hours. After an 18.5% increase in iron ore prices overnight, Fortescue has announced it has signed a non binding agreement with Brazilian miner Vale for investment and product blending opportunities. Bond prices have rallied by around USD5 on the events
Fortescue has announced it has signed a non binding memorandum of understanding (MoU) with Brazilian major mining company Vale S.A. (‘Vale’). A link to the announcement is available here. Vale is the world’s largest producer of iron ore and is considered one of the ‘Big 3” iron ore producers along with BHP Billiton and Rio Tinto. Vale is rated BBB-/Ba3 with a negative outlook and has a current market capitalisation of USD21.9bn.
The MoU sets out the principles on which both companies have agreed to pursue long term opportunities. The MoU covers two key commercial aspects:
- The establishment of one or more joint ventures for the blending of selected volumes of iron ore from both companies – intended to suit the long term needs of customers in the Chinese steel industry
- A framework for potential investment by Vale in Fortescue through a minority acquisition of shares on market and/or investment in current or future mining assets
Fortescue bond prices have rallied significantly over the past 24 hours (around USD4-6 in capital price across each line), buoyed by the 18.5% increase in the iron ore price overnight to USD63.74 per tonne and the deal struck with Vale.
We do expect the volatility in commodity prices to continue but the deal announced with Vale today is a further step in solidifying the long term future of Fortescue.
The Fortescue bonds are offered at the current indicative yields to maturity. The overnight rally provides an opportunity for Fortescue investors who are sitting on meaningful capital gains to take profit.
|Company ||Bond ||Indicative capital price ||Indicative yield to first call/maturity |
|Fortescue ||USD 8.25% November 2019 ||USD98.00 ||8.90% |
|USD 9.75% March 2022 (secured) ||USD104.25 ||8.82% |
|USD 6.875% April 2022 ||USD82.25 ||10.96% |
Pricing is accurate as at 8 March 2016, but subject to change. Please contact your FIIG representative for more information and current pricing levels. The bonds are only available to wholesale investors.